Cliff Owen/AP Photo
Wells Fargo CEO John Stumpf arrives on Capitol Hill, September 29, 2016, to testify before the House Financial Services Committee.
Why the Innocent Plead Guilty and the Guilty Go Free: And Other Paradoxes of Our Broken Legal System
By Jed S. Rakoff
Farrar, Straus and Giroux
Big Dirty Money: The Shocking Injustice and Unseen Cost of White Collar Crime
By Jennifer Taub
Viking
Now is an ideal time to reconsider how we approach a wide range of criminal offenses, as part of top-to-bottom criminal legal reform. Every new administration has put its stamp on federal prosecution policies, and the Biden Justice Department will not be an exception. Just as important, many more prosecutors, defense lawyers, and lawmakers at the state and local level are committed to reform. COVID-19 has radically changed the stakes when a person is placed in custody, turning minor sentences into possible death sentences. We are also still dealing with the criminal response to the last financial crisis. There is so much work to do.
Two new books, Federal District Judge Jed S. Rakoff’s Why the Innocent Plead Guilty and the Guilty Go Free and law professor Jennifer Taub’s Big Dirty Money, illuminate the choices we face in reforming a criminal justice system that readily offers leniency, but largely only to corporations and the most privileged.
Mass incarceration is a “scourge”: That is how Judge Rakoff begins. He then carefully describes how innocent people can and do plead guilty, faced with the overwhelming threat of prosecutorial power. Trials have almost disappeared today, and judges must often treat those guilty of crimes “like dirt” because of tough-on-crime statutes that have imposed inflexible and draconian sentencing guidelines. Often former prosecutors themselves, judges may also be inclined to view long sentences not as a problem but as a solution.
That deep divide between the privileged and the helpless lies at the heart of Rakoff’s book.
Along the way, Rakoff explains, not only have vast numbers of people been sentenced to far more time in prison than they remotely deserve, but innocent people have been convicted, even sentenced to death, based on flimsy forensic evidence, coerced confessions, and lying informants. DNA exonerations and a large body of scientific research have brought to light the “real and continuing” possibility of wrongful convictions due to eyewitness misidentifications. But in the face of all these concerns, the response from prosecutors has been slow, grudging, and sometimes vociferous in objecting to much-needed fixes. So the wheels of justice grind on without pause.
Yet, farther into the book, Rakoff turns to the types of offenders who can evade the scourge of mass incarceration by relying on the very discretion and mercy so often lacking in everyday justice: the white-collar and corporate offenders. Rakoff changes tone here and calls for speedier and harsher efforts to prosecute white-collar criminals. He bemoans that “not a single genuinely high-level executive was successfully prosecuted in connection with the Great Recession.” Our system is so “very aggressive,” but not where individuals have a “corporate shield” to hold over themselves, despite engaging in “colossal fraud.”
When we consider reforming our criminal legal system, a basic question is whether we level up or level down: Should we treat the poor more like the rich, or the rich more like the poor? In a system that over-criminalizes the poor for petty conduct, uses excessive police force, imposes fines that create cycles of debt, locks family members apart, superspreads COVID, and enforces pervasive racial injustice, it is hard to see the need for harsher justice. Yet the most privileged white-collar and corporate offenders receive kid-gloves treatment that arouses legitimate outrage, particularly when fraud begets systemic risk that endangers the entire economy. If we are to reorient criminal justice toward the crimes that matter and release the vast majority of people held for crimes of poverty and illness, we should re-examine how we treat those at the top of the social system, as well as the bottom.
That deep divide between the privileged and the helpless lies at the heart of Rakoff’s book. As a lifelong servant of the law, who loves the law and speaks its language elegantly, he nevertheless asks: “How can we claim that justice is equal,” when every day in our legal system, “we imprison thousands of poor Black men for relatively modest crimes but almost never prosecute rich, white, high-level executives who commit crimes having far greater impact?”
The culture of corporate and white-collar impunity is Taub’s theme in Big Dirty Money. How, in the country of mass incarceration, with 2.3 million in prison, has no one been prosecuted for crimes ranging from Purdue Pharma’s illegal misbranding of OxyContin, to Pacific Gas & Electric’s role in the deadliest blaze in California history, to Wells Fargo’s abuses in setting up millions of accounts for customers who did not ask for them? The carceral drumbeat begins from the first pages of the book. Taub notes that from 2002 to 2006, the Department of Justice targeted large numbers of CEOs, corporate prosecutors, CFOs, and others. Then, after the 2008 financial crisis, that pattern “broke down.”
We know so little about the extent or nature of many corporate crimes that it is hard to say whether more top-level prosecutions would matter. In general, more severe sentences do not deter crime, but catching criminals more often does. Prosecutors have made efforts to target individual offenders in some areas, but it isn’t clear whether even high-profile cases, such as the Enron-era prosecutions, have made a difference in corporate behavior.
Corporations themselves distort prosecutions by focusing prosecutors on the firm itself rather than on individuals.
In 2015, in response to criticism, Deputy Attorney General Sally Yates issued a new Department of Justice memo prioritizing individual investigations and prosecutions in corporate cases. Little changed. As I wrote at the time, bringing more such cases is easier said than done. It would take substantial resources to prosecute individuals in every corporate-crime case; I’ve described how the following years saw no rise in individual charging accompanying corporate prosecutions. Under the Trump administration, the Yates Memo was softened, reflecting the reality that the administration was unwilling to commit the resources necessary to prosecute cases against individuals in complex corporate environments. We would need a serious corporate-fraud task force to do it.
Why have privileged offenders escaped liability? Rakoff offers several diagnoses. Prosecutors “had other priorities”—like mass incarceration. Corporate cases can involve technical financial rules, big data, and millions of pages of records, as well as employees with overlapping roles and authority. Understanding internal records and practices, and nailing down who did what, can require tens of thousands of hours and entire teams of lawyers. Federal prosecutors’ offices, as well resourced as they are, do not have the ability to bring many such cases. Only by prosecuting the company can prosecutors secure, from the company’s own team, access to all of that internal information. In effect, prosecutors deputize the corporation to investigate itself. Without vastly expanded regulatory enforcement wings across all of the relevant administrative agencies, relying on corporations to self-investigate and self-report is a fact of life.
A common theme that Rakoff shares with Taub is that corporations themselves distort prosecutions by focusing prosecutors on the firm itself rather than on individuals. As I have documented in my data-tracking, prosecutors have turned to informal deal-making, increasingly entering deferred prosecution or non-prosecution agreements filed largely out of court, without the firm getting a criminal record. I agree with Rakoff that many of these agreements are “lax and dubious,” and I have detailed the sausage-making that goes into producing these settlements.
Despite the uneven results, there are still important reasons to target corporations. The corporation is the crime scene: Only the firm will have the emails, documents, and other records concerning who did what and where the money went. Speaking of money, jailing individual offenders does not make victims whole. Except in rare cases like the OxyContin litigation involving the Sackler family, individual executives usually cannot pay hundreds of millions of dollars to compensate victims. Individual offenders also cannot reform corporate practices to make sure that future misconduct is detected and prevented.
Rakoff and Taub do not suggest that targeting a few dozen more executives would accomplish meaningful deterrence or reform. Indeed, unless something more fundamental changes in our enforcement system, a firm will just discard former executives and move on to new schemes. Instead, Rakoff and Taub mean to end a culture of impunity and lax enforcement. That desire can veer into populist retribution with little long-term impact. As Taub notes, after “top-shelf felons” such as Michael Milken and Jeff Skilling have been prosecuted and completed prison stints, they have been able to relaunch their careers “with little lasting stigma.” Those examples highlight the comparative injustice that poor people face from lasting sanctions after a conviction, whether it is loss of voting rights or disqualification from employment. We need to focus on leveling up: Successful re-entry is what we should want for all persons leaving custody each year in this country. It should not just be the largest corporations that receive rehabilitative deferred prosecution agreements. People should receive them, routinely.
AP Photo
Biden’s Department of Justice can end out-of-court corporate settlements and non-prosecution agreements.
Detecting corporate crime is particularly important, Taub correctly emphasizes, and investing in better detection may be far more effective than aiming to impose severe sentences on a few higher-ups. Fraud, by its nature, involves concealment, even from the victims who may be fleeced, whether they are customers, shareholders, the government, or the public. Expanding the rewards for journalists and whistleblowers would help to incentivize efforts to uncover corporate wrongdoing. Much of that work may support civil, not criminal, investigations, but that is a good thing.
To end over-criminalization, civil enforcement can replace criminal enforcement. Recovering the money lost by victims requires hard work, and prosecutors are not the best suited for it. Expanding investigative and enforcement resources is crucial. Taub notes that the IRS alone is unable to collect an estimated $800 billion in taxes that are owed each year. We also need to improve funding for corporate investigations at other agencies such as the Securities and Exchange Commission and the Environmental Protection Agency. Civil suits by private lawyers or state-level attorneys general may also be more effective than federal prosecutions. We need more serious tools, including stronger regulatory measures, to ensure that hucksters do not act with impunity. Indeed, Rakoff asks whether the Trump administration’s “across-the-board deregulation” may have created new systemic risks of financial fraud. Criminal prosecutions cannot replace sound regulation and oversight of industries that can endanger the public.
Six Guidelines for Corporate Prosecutions
There are changes that the Department of Justice can make to address the crisis that Rakoff and Taub illuminate. The Biden campaign promised it would focus on reducing incarceration, rooting out racial and income-based disparities in punishment, and strengthening rehabilitation. Although mass incarceration is largely a state phenomenon, new federal incentives and federal use of clemency can help reduce imprisonment. The Department of Justice can play a leadership role in policing reform. It could create an Innocence Commission to detect and remedy wrongful convictions. Federal legislation can promote bail reform, alternatives to incarceration, and improved criminal system data collection.
The guidelines for corporate prosecutions will also no doubt change under the Biden administration. Here are six specific ideas.
First, out-of-court corporate deals should end. We need legislation to set rules for judicial approval of deferred prosecution agreements and their oversight. Whether or not that happens, the DOJ can take action. Federal prosecutors should not use non-prosecution agreements that are not filed in court, except in narrow circumstances. Pleas should be preferred, so that the corporation is on probation. And there should be an office of corporate probation created to ensure serious monitoring.
Second, we need to know whether compliance is working. In the past, corporate agreements ended without any meaningful check on whether the company had fixed the problems. Even in cases where there was an outside monitor, the reports and the work of those monitors were not made public. Instead, compliance should be empirically validated, in specific cases and over time. Compliance should be tested by prosecutors and by administrative agencies, as Gregory Mitchell and I have written. Indeed, the DOJ and agencies can be a clearinghouse for self-critical data collected from such auditing, and for compliance practices that are shown to be successful.
Third, whistleblower programs should reward the reporting of malfeasance, over and above rewards to corporations that self-report. We need to uncover misconduct, hopefully before it festers and results in serious criminal conduct and social harm.
Fourth, corporate fines should normally be calculated to make sure that a company did not profit from crime. In the past, fines have been heavily discounted, and under the Trump administration there was a focus on not “piling on” fines. To be sure, companies should not be double-fined, and setting off payments to other jurisdictions or countries is sensible.
Fifth, individual prosecutions should focus on the most responsible and senior individuals. The Yates Memo should be restored, but in a modified form to make clear that civil sanctions may be appropriate for many lower-level corporate figures and that it is equally important to change incentives within the firm to ensure internal discipline when people break the law.
Sixth, prosecutors should make public what happened in corporate criminal cases, including records of ongoing monitoring and compliance issues. Relatedly, repeat criminal action by corporations should bring clear and predictable penalties. More severe consequences are warranted when a company cannot end its lawbreaking practices. Rakoff cites my data concerning corporate recidivism in my 2014 book Too Big to Jail and, unfortunately, these recurring patterns may persist. I created the Corporate Prosecution Registry, a collaboration between the law schools at Duke and the University of Virginia, because no tracking existed for corporate crime.
The world of corporate criminal enforcement has evolved considerably over the past two decades, and individual people should benefit from lessons learned. We need more diversion, deferred prosecution agreements, and rehabilitation for individuals, not just for corporations that pledge good behavior after being accused of the largest-scale crimes imaginable.
We need to channel understandable outrage away from our worst carceral impulses, toward criminal legal reform. Too often, the privileged walk free, when people languish in our jails because they cannot pay cash bail, or they are killed in police encounters over petty enforcement, or they lose their driver’s license because they cannot pay traffic tickets. The solution is not to draw tighter chains around both the privileged and the weak. As Rakoff puts it, “Our current system of justice is beset by hypocritical pretensions, conundrums, paradoxes, and shortcomings.” That’s not just a call to outrage. It’s a call to action.
